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Glossary of Financial Terms

ALLOCATION - The assignment and reassignment of a cost or group of costs to one or more cost objectives based on a reasonable standard. Terms with assorted shades of meaning are cost reallocation, cost assignment, cost apportionment, cost assessment, and cost distribution. For example, building costs are allocated on the basis of square footage occupied by each unit.

APPROVED BUDGET - The Approved Budget represents the Board approved financial plan for a given year. The Approved Budget serves as the benchmark by which the Society's financial performance is implemented and monitored.

ASSESSMENT - A method by which indirect costs are spread to an operating department based on a predetermined basis (see Indirect Assessment).

ASSET--Assets are probable future economic benefits obtained or controlled by the Society as a result of past transactions or events.

BOOK VALUE - Original cost of an asset less any accumulated depreciation. The book value is not necessarily equal to the market value of an asset (see Depreciation Expense).

BUDGET - A quantitative expression of a plan of action, for a given period of time, and an aid to the coordination, implementation, and measurement of the plan of action. Also it is a tool for obtaining the most productive use of an organization’s total resources.

CAPITAL ASSET - Also called fixed asset. A physical asset with a useful life of more than one year, held for the services it yields in the production of goods and services. For example, buildings, machinery, equipment, and land (see also Long-Term Assets).

CAPITAL BUDGET - A process of planning expenditures for assets with returns expected to continue beyond one year or the making of long-term planning decisions for investments in fixed assets and their associated financing..

CASH AND CASH EQUIVALENTS - This represents cash and short-term highly liquid investments that are readily convertible to known amounts of cash and are so close to maturity dates that they present insignificant risk on changes in value because of changes in interest rates. Examples of cash and cash equivalents are money market accounts and Treasury bills.

CONTINGENCY PLAN - The set of actions that the Society could take if the risks facing the Society’s traditional sources of revenue such as CAS, Publications, Membership and Investments become a reality. This plan reflects comprehensive contingency action plans for operating units, programs, indirect cost centers and the Society itself in anticipation of and preparation for threats and opportunities that the Society will face in the foreseeable future. .

COST OF CAPITAL - The cost of obtaining equity capital to be invested in long-term plant and equipment. It is a weighted average of various debt and equity components. The cost of capital allocation has two parts: 1) the debit, or the charge to the operating units for the use of the Society’s funds for capital purchases; and 2) the credit to the Investment Program in lieu of the interest or dividends that could have been earned had the funds been invested instead of being spent for capital purchases. The whole process - the debits and the credits - is called the cost of capital allocation. The debits to the operating units for use of the Society’s funds are called the cost of capital charge. The credit to the Investment Program as compensation for the interest and dividends forgone is called the cost of capital recovery.

CURRENT ASSET - Cash and other assets that are reasonably expected to be turned into cash, sold, or consumed within the normal operating cycle, or within one year of the last Statement of Financial Position, whichever is longer. Major items included in this category are cash, short-term investments, receivables, inventories and prepaid expenses.

CURRENT LIABILITY - Short-term liabilities whose liquidation is reasonably expected to require the use of existing resources classified as current assets, or the creation of other current liabilities. Major items included in this category are accounts payable, accrued expenses, short-term deferred revenue, and short-term debt.

CURRENT LIABILITY - Short-term liabilities whose liquidation is reasonably expected to require the use of existing resources classified as current assets, or the creation of other current liabilities. Major items included in this category are accounts payable, accrued expenses, short-term deferred revenue, and short-term debt.

DEBT RATIO - A ratio used to assess the organization’s ability to meet its long-term obligations. This ratio is useful in forecasting an organization’s long-term solvency. The debt ratio is calculated by dividing total debt by total capitalization.

DEFERRED REVENUE - A liability account representing receipts of cash in advance of delivering goods or rendering services. These types of transactions are not recognized as revenue until the exchange involving the transfer of goods or services has occurred and the earning process is essentially complete. Examples of deferred revenues include membership dues and subscription payments received in advance.

DEPARTMENT ID - The lowest level at which financial data is captured. A Department ID may be a publication, an individual unit of a larger program, or an entire program.

DEPRECIATION EXPENSE - The allocation of the cost of a fixed asset (less salvage value) over its estimated useful life in a systematic and rational manner. This systematic and rational allocation provides for a reasonable and consistent method for recognizing and matching the cost of an asset against the revenues generated during the asset's useful life.

DIRECT COSTS - Costs that can be specifically associated with a single cost objective in an economically feasible way or closely associated with the output of a product or service. In addition, direct costs tend to vary proportionately with the volume of production or level of service provided.

DUES ESCALATOR - Amount by which the annual membership dues rate is increased. The escalator is subject to certain limitations, as stipulated in the Bylaws of the Society.

DUES REVENUE AND ASSESSMENTS - Pool of funds used to provide support to all dues-related activities and programs. Revenues such as dues, circulation list royalties, and contributions are examples of the components of dues-related revenues. These revenues, combined with supplemental funding from the Self-Sustaining areas, provide the total funds available for local section and division allotments and net program expenses.

EXPENSES - Expenses are outflows or other uses of assets or incurrences of liabilities (or a combination of both) resulting from the delivery or production of goods, rendering of services, or carrying out of other activities that constitute an organization's ongoing major or central operations.

FIXED COSTS - Costs that remain unchanged within the relevant range for a given time period despite fluctuations in activity.

FREE CASH FLOW - Represents a common measure of internally generated cash and is defined as cash from operations less fixed asset purchases.

FUND BALANCE RATIO - This ratio provides a rough test of the Society’s margin of safety by comparing the current year’s unrestricted net assets with next year’s operating expenses. It reflects the percentage of next year’s operating expenses that could be paid for in full from the reserves.

GAAP - Generally Accepted Accounting Principles refers to the standard framework of conventions, rules, and procedures that provide the guidelines accountants follow to record and summarize financial transactions. The Financial Accounting Standards Board (FASB) defines these principles upon which accountants depend in order to prepare an organization’s financial statements. The Society’s financial statements are prepared in accordance with U.S. GAAP.

GENERAL AND ADMINISTRATIVE EXPENSES (GAE) - Those expenses associated with the indirect cost centers; e.g., Officers, General Administration, Human Resources, Finance. These expenses are distributed to the operating units through the use of an indirect assessment.

INCREMENTAL COST - The difference in total cost between two alternatives in a decision - also called differential cost.

INDIRECT ASSESSMENT - General and administrative expenses and building costs which are distributed to the operating units through an assessment formula.

INDIRECT COSTS - Costs that are not directly related to the output of a product or service or cannot be identified specifically with a single cost objective in an economically feasible manner. Indirect expenses represent the costs of running a business.

INTERNAL RATE OF RETURN - The rate of interest at which the present value of expected cash inflows from a project equals the present value of the expected cash outflows of the project.

IRS FORM 990 - An annual information return - Return of Organization Exempt from Income Tax - that certain federally tax-exempt organizations must file with the Internal Revenue Service. It provides information on the tax-exempt organization’s mission, programs, finances, governance and management policies, and disclosure practices.

IRS FORM 990-T - An income tax return - Exempt Organization Business Income Tax Return - that an exempt organization must file with the IRS if it has $1,000 or more of gross income from an unrelated trade or business. Even though an organization is recognized as tax exempt, it still may be liable to pay tax on its unrelated business income.

LIABILITY - Liabilities are probable future sacrifices of economic benefits arising from present or past obligations of the Society.

LIQUID ASSETS - Economic resources that can be immediately convertible to cash (generally without incurring a loss). Included in this category are cash, immediate cash equivalents (checks, bank drafts, and money orders) and other cash equivalents (money market funds, commercial paper, certificates of deposit and equity investments). The Society defines liquid assets as cash and short-term investments.

LONG-TERM ASSETS - Assets whose benefits are expected to be received over a period of more than one year. Usually includes long-term investments, fixed assets, and deferred charges.

LONG-TERM LIABILITIES - Obligations that will not require the use of current assets for payment during the next operating cycle or during the next reporting year, whichever is longer. Long-term liabilities are recorded at cost, or if cost cannot be determined reliably then the long-term liability is recorded at the discounted present value of all of its required future outlays. Long-term liabilities include bonds payable, long-term notes payable, and long-term lease obligations. The portion of long-term debt due in less than one year is classified as a current liability on the Statement of Financial Position.

MATCHING PRINCIPLE - Revenues and expenses should be matched within the periods to which they apply.

NET ASSETS - Represents the residual interest in the assets of the Society that remains after deducting its liabilities. Also called reserves.

NET CONTRIBUTION - Net contribution is calculated by subtracting all expenses from all revenue sources.

NET OPERATING LOSS - For federal income tax purposes, a net operating loss (NOL) is defined as the excess of business deductions (computed with certain modifications) over gross income in a particular tax year. A deduction is allowed for that loss by allowing an organization to apply that loss to taxable income. The NOL may be applied by carrying the loss deduction back three years and forward 15 years. A taxpayer may elect not to use the carryback period and instead only carry over the NOL for the maximum period of 15 years. Applying an NOL forward can result in a reduction of an organization's current year liability.

NET PRESENT VALUE - Discounted expected future cash inflows and outflows to the present, using some appropriate rate of return.

NON-CASH ITEMS - Represent adjustments to net contribution to eliminate the effect of revenues and expenses for which there is no corresponding outlay of cash. An example of this item would be depreciation expense. These adjustments are normally associated with a Statement of Cash Flows.

OPERATING BUDGET - A document and a process of planning revenues and expenditures for a year or series of years

OPPORTUNITY COST - The maximum benefit forgone by using scarce resources for a particular purpose. It is the benefit provided by the next best use of that resource.

PERMANENTLY RESTRICTED NET ASSETS - The part of net assets of a not-for-profit organization resulting from (a) contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization; (b) other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) reclassifications from (or to) other classes of net assets as a consequence of donor-imposed stipulations.

PHASED BUDGET - A monthly operating budget, based on the Approved Budget, which reflects management's best estimate as to when the revenues and expenses are anticipated to be incurred.

PROBABLE YEAR-END PERFORMANCE - Projections presented to Governance at both the Fall National Meeting and the December Board Meeting to reflect management’s estimates for the year as of a certain point in time.

PROGRAM - A set of related actions that can be described and reported in financial terms as revenues and/or expenses. Information about a program's goals and financial performance has been identified as requiring focused attention when making strategic and operational decisions.

PROPOSED BUDGET - The Proposed Budget for the following year is presented to Governance at the December meeting. At this meeting the Board reviews the budget and may direct management to include certain items approved at the December meeting before the budget is approved.

REVENUES - Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) resulting from the delivery or production of goods, rendering of services, or other activities that constitute the organization's ongoing major or central operations.

REVENUE GROWTH - This ratio measures the percentage increase or decrease in the current year’s revenue in relation to the prior year’s revenue. It provides a relative measurement of growth against the Consumer Price Index or some other specific target of the economy or industry. This ratio is calculated by dividing Current Year’s Total Revenues minus Prior Year’s Total Revenues, by Prior Year’s Total Revenues.

REVENUE GROWTH - This ratio measures the percentage increase or decrease in the current year’s revenue in relation to the prior year’s revenue. It provides a relative measurement of growth against the Consumer Price Index or some other specific target of the economy or industry. This ratio is calculated by dividing Current Year’s Total Revenues minus Prior Year’s Total Revenues, by Prior Year’s Total Revenues.

REVENUE RECOGNITION PRINCIPLE—Revenue is recognized when the earning process is essentially complete and is recorded when the most important event in the earning of that revenue has occurred. It requires that all four of the recognition criteria - definition, measurability, relevance, and reliability - must be met. Also there must be a completed transaction and a completed earnings process.

SELF-SUSTAINING ACTIVITIES - Those activities that are expected to generate revenues in excess of their total expenses (both direct and indirect).

SHORT-TERM INVESTMENT REVENUE - Investment income earned by the Society on its working capital balances. Short-term investment revenue is allocated to individual operating units based upon an algorithm that measures operating funds flow.

SOCIETY PROGRAMS - Governance approved programs that provide a direct benefit to the Society's members or directly support the advancement of chemistry as a scientific discipline, which are generally not self-sustaining in nature.

SOCIETY PROGRAM PORTFOLIO MANAGEMENT— An holistic process designed to transparently manage the strategic addition, ongoing review and potential sun setting of programs within Membership & Scientific Advancement, Education and the Office of Public Affairs.

STRATEGIC PLANNING - Determines the general direction and goals of the Society in both the short and long term. Strategic planning considers the resources of the Society, the likely behavior of competitors, the direction and pace of technological change, and the projected demands of the marketplace.

TEMPORARILY RESTRICTED NET ASSETS - The part of the net assets of a not-for-profit organization resulting from (a) contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the organization pursuant to those stipulations; (b) other asset enhancements and diminishments subject to the same kinds of stipulations; and (c) reclassifications to (or from) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or their fulfillment and removal by actions of the organization pursuant to those stipulations.

UNRELATED BUSINESS INCOME TAX - Generally, a tax-exempt organization with gross income of $1,000 or more for the year from an unrelated trade or business must file a tax return and pay any tax due. A basic principle that establishes exemption from income taxes is that an organization's income is exempt only if its primary purpose is the type of activity for which it claims exemption. Income received from a trade or business that has little or no relationship to an organization's exempt purpose is therefore considered to be unrelated business income and is subject to tax.

USE TAX - The use tax is a complementary tax to the sales tax. Use taxes are imposed on the privilege of ownership or possession, storage, use or consumption of tangible personal property. The purpose of the use tax is to prevent sales tax evasion by out-of-state purchases and to make an equitable adjustment between local and interstate businesses.

VARIANCE--The difference between actual and budget performances.

WORKING CAPITAL--The excess of current assets over current liabilities. The level of working capital is viewed as a measurement of liquidity.